Segro steps up demolitions after change to tax relief

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The chief executive of Segro has lambasted the Government's removal of business rate relief on empty commercial property, as it revealed a first-half loss of £315m from tumbling property valuations.

Ian Coull, head of the international property investment and development company, said: "It was never a sensible idea but it was a particularly stupid tax in the current economic circumstances." The Government ended business rate relief on empty commercial property from 1 April, whereas previously empty retail and office space received full relief for three months and 50 per cent thereafter, while industrial space, warehouses and factories, received full relief permanently.

Evidence is beginning to emerge that some landlords are choosing to demolish buildings rather than pay extortionate rates on empty property, as The Independent revealed on 13 August.

Mr Coull said: "I feel very strongly about it. It is an unfair tax. It penalises regeneration opportunities and it is then that buildings will get demolished more quickly and we are seeing signs of that already." The British Property Federation has been campaigning for the tax relief to be reapplied at 50 per cent, as allowed for in the legislation.

Segro said it had undertaken 450,000 sq ft of demolitions in the first half of this year, compared with 400,000 sq ft for the whole of last year. Mr Coull stressed that the introduction of the tax was not the sole reason for the demolitions, but he said it had "definitely been a factor".

Segro expects to pay £8m in empty property tax for the full financial year.

For the six months to 30 June, Segro posted a pre-tax loss of £315.3m, compared with a profit of £195.4m for the same period last year, affected by £389m of valuation losses in the UK. Mr Coull said: "The UK commercial property market has been seeing valuations fall since June of last year and our portfolio fell by nearly £400m in the first half of this year." Its adjusted pre-tax profits were flat at £67.4m for the half-year compared with £68m last year. Despite the fall in its UK property valuations, Mr Coull said: "Our leasing levels have remained strong, with low occupier insolvency levels, in line with recent years."

However, Mr Coull stressed that the valuation of its commercial property on the European continent grew by nearly 1 per cent and that its strategy of diversifying Segro's portfolio in Europe was the right one. "Our European performance has been very good this year and counter-balances what has been happening in the UK," said Mr Coull. The growing economies and wealth of consumers in Eastern Europe was driving demand for commercial property, such as retail distribution centres.

However, Lehman Brothers' analyst Mike Prew expressed concerns about the growth prospects for Segro's dividend. Segro unveiled an unchanged interim dividend of 8.3 pence per share. Mr Prew said: "The issue is not so much this year's dividend growth – with trading profits in storage, but setting the base for next year."